Utah Legislature preparing to stop secret big money settlements

SALT LAKE CITY — Fueled by the controversy over the $13 million the Utah Department of Transportation paid out to a losing bidder without telling state officials, GOP lawmakers are already gearing up to put a stop to any more similar settlements.

At least two bills are being drafted for the 2011 Legislature that would end UDOT's long-standing exemption from a state law requiring the governor and lawmakers to sign off on settlement payouts.

UDOT quietly negotiated the $13 million settlement at the beginning of the year with one of the losing bidders in the $1.7 billion CORE project to reconstruct I-15 through Utah County.

The settlement came as a surprise to legislative leaders as well as to Gov. Gary Herbert, already being questioned about accepting tens of thousands of dollars in campaign contributions from members of the winning bid team.

Sen. John Valentine, R-Orem, said UDOT needs limits on how much money can be paid out to settle contract disputes without the approval of state officials.

"I think it's a matter of trust in our government. We want to make certain our government is doing things openly and transparently, and that elected officials are having to take responsibility for the decisions that are made," Valentine said.

He said while UDOT did nothing wrong, "it just has the appearance of something wrong when it's not shared to the governor and to the Legislature, to elected officials."

State law requires other government agencies to get the governor's OK for settlements of $500,000 or more, and lawmakers get involved when the amount is at least $1 million.

Valentine said he's not sure at what point UDOT should have to come to state officials before cutting settlement checks, but it will be "significantly lower than $13 million."

Rep. Julie Fisher, R-Fruit Heights, will talk about a similar bill proposal in next Wednesday's interim transportation committee meeting. She said lawmakers were frustrated by the size of the settlement.

"It's a lot of money and I think it was disturbing that we didn't have an opportunity as a legislature to weigh in on it," Fisher said. "Any public citizen is going to say the $13 million was a lot to award."

Herbert responded quickly to the news of the settlement, ordering a state audit of UDOT and, by executive order, requiring the agency to bring any settlement of more than $100,000 to him for approval. So far, two settlements of "well under $750,000" each in eminent domain cases have come to the governor, his spokeswoman, Angie Welling, said.

His office, too, is trying to determine what limit should be placed on UDOT permanently. "We'll look at what the right figure is," Welling said. "His concern is primarily with transparency and accountability in the process."

Herbert and others have pointed out that UDOT made the decision to settle to avoid a lawsuit that would have delayed the state's most costly road project.

"It was a business decision to clear the air and enable us to move forward," UDOT Executive Director John Njord said. He said the I-15 project was bid out differently than most of UDOT's contracts.

Unlike the traditional low-bidder competition, the "design-build" contract required companies to tell UDOT how much worth they could accomplish for a set price.

"We were trying to accomplish, in an innovative fashion, the best value for the citizens of our state," Njord said. "Frankly there is nothing like this. This is a very unique project."

But the Colorado Department of Transportation recently spent $1.7 billion on a similar design-build project, the so-called "T-Rex" rebuild of Denver's interstates — without paying out any settlements.

"We had our share of protests on bids, but I'm not aware of any situation or any case where we've actually settled with a contractor in this instance," said Stacy Stegman, spokeswoman for the Colorado DOT.

Unlike Utah, she said Colorado requires unresolved claims to go to mediation or arbitration. Any legal settlement must be approved in public by that state's transportation commission.

And even though Colorado does not require state officials to approve DOT settlements, Stegman said, "we try to be very, very open with the governor's office on everything and especially if something gets to a large financial settlement or something that's out of the norm from our normal way of doing business."

A survey of state transportation departments nationwide by KSL-TV and the Deseret News found only a few instances where states paid out large settlements involving disputes over road bids.

Of the more than 30 states that responded, half reported no recent settlements. And in those states that did pay out money to losing bidders, none cut checks for more than $5 million.

Many of the states that responded said unhappy bidders must pursue a clear-cut process such as mediation, or even file a lawsuit, before a settlement can be awarded. UDOT, however, had no such requirement.

In fact, both of the losing bid teams had agreed up front to give up their designs to UDOT, in exchange for $1.5 million each. The settlement gave one of the losing bid teams, Flatiron/Skanska/Zachary, an additional $11.5 million.

Joseph Rust, a construction law attorney, said he believes the additional payout was made because UDOT feared it would lose a challenge to the bid award in court.

"The fact that they settled it quickly, they settled it for a large amount," Rust said, "suggests that there are some issues there that were pretty significant."